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SBI: Expanding horizon

Despite sluggish industrial environment, SBI has reported a healthy growth in business volumes. The bankís average advances in first half of the current fiscal were higher by 9% while deposits rose by 17%. Declining interest rates however, narrowed its interest spread.

Although, the bankís core income witnessed a marginal growth of 4%, a 39% jump in interest on investments assisted the bank to post a 20% rise in total income in the first half. SBIís total investments grew by 30% in the first half of the current year from Rs 1.2 trillion as on March í01.

Break-up of interest income

(Rs m)

1HFY01

1HFY02

Change

Interest on advances/bills

54,390

56,330

3.6%

Interest on investments

60,030

83,200

38.6%

Others

6,730

6,210

-7.7%

Total

121,150

145,740

20.3%

During the first half, the bank invested amount received from IMD (India Millennium Deposits) and Resurgent India Bonds in the government securities market amounting to Rs 277 bn. The bank made gains of Rs 2.8 bn from sale of investment, which was more than double compared to 1HFY01. However, its provision for depreciation in investment portfolio increased to Rs 1.2 bn in the first half from Rs 39 m in 1HFY01. The bank had earlier purchased securities at premium to cost price and the premium was not amortized. Also, its investments in mutual funds witnessed a decline. These contributed to a sharp rise in provisioning amount. Its revenues from commission meanwhile declined marginally. Private banks and other public sector banks seem to be snatching SBIís market share in this segment. Its forex and cash management services (turnover of Rs 930 bn in first half) business could also witness a similar trend in the coming quarters.

Other income mix

Particulars

1HFY01

1HFY02

Commission & Exchange

62.0%

52.6%

Forex

8.5%

9.1%

Sale of investments

7.8%

13.8%

Miscellaneous

21.7%

24.5%

Total

100.0%

100.0%

SBI has indicated a revival in credit demand both from corporates and retail in the second half of the current year. The bank expects 70% of its credit growth to occur in the second half of the year and has targeted an overall 16% growth for the fully year. SBI is venturing aggressively into housing finance business by lending at sub-PLR rates and waiving the processing charges. Its housing loan portfolio witnessed a sparkling growth of 46%, YoY, on incremental advances in the first half. With its low cost of funds, SBI earns much higher margins compared to other housing finance companies.

Its card business is also growing at a strong rate. The bank added 233,000 cards in the first half taking the total number to 780,000. The business has already achieved break-even level. SBI has the second largest card business in India and plans to overtake the leader Citibank in the first quarter of the next year. The bank has one of the lowest delinquency rates of 4% in card business. Considering SBIís large customer base, card business presents immense growth opportunities.

Among the other new initiatives, SBI is taking rapid actions on its unviable branches. It has closed down some of its loss making branches, which were located mostly in rural parts of India. The number of loss making branches now stands at 781 from 1,063 as on March í01. On the technology upgradation front, SBI has computerized 29% of its total branches, which covers 79% of its total business. It has also stared online banking in select metros and launched 329 ATMs in 100 centres across the country. The bank is all set to become a universal bank once it completes its technology plans. But it will take some time before it actually achieves its target considering its public sector status. Its valuations will also get adjusted accordingly. The stock is trading at a P/E of 3x and Price/Book value ratio of 0.6x.

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